Compensating your Employees in Stocks is Embarrassingly Easy in Australia
In February, Business Insider published an article highlighting the new mindset of the Australian tax authority when it comes to employee stock option plans (ESOPs) and the valuation of startup companies.
It’s true what they are saying, ESOPs come in handy for startups for an array of reasons. First, cash strapped companies can benefit from compensating employees with equity. Second, employees are retained and more motivated by having a share in the business. Third, if the company grows, employees can really benefit financially. In fact, did you know that Uber’s first employee is now a billionaire?
As Business Insider expert Amit Shah mentioned, legal and accounting complexities of ESOPs could easily get in the way of early stage companies being willing to assign them to employees. Yet, several steps have been taken by the Australian tax authorities to make the process faster, easier, and most importantly, transparent.
How does it work? They published simple valuation methods for small companies (younger than 7 years with less than 10M funding) that guarantee valuation approval from the tax office.
From over here in our office in the Netherlands, this looks pretty great! And I bet our fellow founders in the Valley and the Alley and in London would agree too. I won’t get into details, but it is really easy, you can check out the rules here.
As always, valuation is a mixture of art and science.
However, there are a lot of cases when valuation is mandatory, especially for small private entities, and it should be performed as efficiently as possible to prevent the drain of precious resources.
We are really glad to see this trend being applied by governments and by tax authorities. At Equidam, we will always do our best to simplify the valuation process for everybody. In the meantime, let’s hope governments all over will follow suit.
P.S. I am not aware of any other country that made valuation as simple as Australia, but maybe there are others? I’d love to know about them or any new approaches, so feel free to reach out in the comments or on twitter @faloppad